Market Insight - July 2016
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Striking a Balance

In:Out - It Certainly Shook Us All About!
The vote to leave came as a shock, but life goes on.

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After the rally in currency and stock markets the day before, the referendum result came as a shock– especially in London. The UK voted 52 per cent to leave the EU against 48 per cent to remain on a turnout of 72 per cent (the general election turnout was 66 per cent).

Currency and stock markets sank, and we now have to assess the likely impact of this historic decision. The honest answer is that it’s far too soon to know. Financial and stock markets are still volatile and with David Cameron’s resignation as prime minister and a proposed vote of no confidence in Jeremy Corbyn, the leader of the opposition, there is political uncertainty to throw into the mix too.

What can we say? Clearly there are risks ahead, but people will still need to move home for personal and practical reasons. Those looking to buy and sell now or who are already in the pipeline will already have taken the possibility of Brexit into account, and early indications suggest that they are happy to continue with their move. And for overseas buyers the fall in Sterling gives the added bonus of a London bargain, even without any sterling price negotiation.

Most economists predict that leaving the EU will slow the UK’s economy, and that will probably have implications for the markets. But it’s not necessarily all gloom. Unlike the major crash in the early 1990s, caused by a big hike in interest rates, the Bank of England is unlikely to raise rates rapidly even if there is a hike in inflation caused by more expensive imports. And even if the bank has to raise rates to support the currency, 50 per cent of mortgage holders are on a fixed rate, compared with 35 per cent 2 years ago, so the market is unlikely to be affected by distressed sales.

Unlike the 2008 financial crash, banks and mortgage lenders are in a much more secure position thanks to the rules put in place under the Prudential Regulation Authority. As a result, they are able to withstand greater stress and uncertainty in the market. The severe credit crunch experienced then seems unlikely to repeated now as a result of the vote to leave.

Undoubtedly uncertainty will have some effect on markets, but over time that will dissipate as the details of the UK’s exit from the EU becomes clearer. And, it is in everyone’s interest to make that exit as smooth and painless as possible.

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